Question 4 :home / study / business / operations management / questions and answers / 1. it is estimated that re-branding the professional ... Your question has been answered! Rate it below. Let us know if you got a helpful answer. Question: 1. It is estimated that re-branding the profession... Bookmark 1. It is estimated that re-branding the professional range of Black & Decker power-tools as "DeWalt" would require a $3 million increase in advertising budget. Given that the average margin on power tools is 10%, what is the additional revenue required to break-even on this budget increase? 2.1. A Black & Decker board member is outraged about the brand name change. Instead, he proposes that the company should increase its competitiveness by posting a 5% price cut. Assuming an average initial margin of 10%, what would be the required sales volume increase (in percent) in order to break even on such a price cut? 2.2 Another member of the board is also outraged about the name change. Instead she thinks Black & Decker should sell at a premium and argues for a price increase of 5%. Assuming the same 10% margin, what decrease in sales volume (in percent) would result in a breakeven on the price change? 3. Continuing with Black & Decker and assuming the same 10% margin on retail sales of power tools, consider that (1) an average professional craftsman customer pays about $3,000 per year on new power-tools, and (2) Black & Decker has a customer churn rate of 20% per year. If we ignore time discounting, what is the maximum cost Black & Decker can spend in order to attract a new customer to its brand (so that the customer lifetime value is not negative)? 4. Now assume (1) a 10% margin for Black & Decker on retail sales, (2) $3,000 per year of average revenue per professional customer, (3) a churn rate of 25% per year, (4) 8% yearly interest rate used when discounting future amounts of money, (5) a gift of $100 for the purpose of customer acquisition. 4.1. What is the customer lifetime value of a typical Black & Decker professional customer? 4.2. What retention rate would we need to double this customer lifetime value, leaving everything else unchanged?